The Tax Publishers2016 TaxPub(DT) 3583 (Kol-Trib)

 

Dy. CIT v. K.B. Capital Markets (P.) Ltd.

 

INCOME TAX ACT, 1961

--Head of income--Business income or capital gainsGain on sale of shares----Where the revenue, in earlier assessment years 2006-07 and 2007-08 assessed income from purchase and sale of shares as giving rise to short-term capital gain there under similar facts the gains shall be treated as short-term capital gains in nature. Further, the shares were held as investment in banks and no borrowed funds were used in purchasing shares the magnitude of transactions carried out by assessee should not be very material in coming to the conclusion that income in question was income from business though the rule of res judicata is not applicable but the principle of consistency would definitely apply.--It was both a dealer as well as investor in shares. It had declared gain on sale of shares held as investment, 'short-term capital gain' since shares were held for less than 12 months. However, considering the magnitude and volume of transactions, period of holding, frequency of transactions and the nature of activities and also common demat accounts, AO treated income from purchase and sale of shares as income from business. Held: In the earlier assessment years 2006-07 and 2007-08 in assessment completed under section 143(3), on identical volume of transaction, the AO had accepted the case of the assessee that income from purchase and sale of shares was short-term capital gain and not business income. The same position continued in assessment for assessment years 2010-11 and 2011-12 also. On perusal of a chart showing the average holding period of investments sold during the previous year it was evident that the holding period had been substantially high in respect of shares which gave rise to short-term capital gain. Further, the shares which were sold and which gave rise to short-term capital gain were held by the assessee as investments in its books of account. The treatment in the books of account was one of the important criteria which would support the plea of assessee that income in question was short-term capital gain. Further, no borrowed funds had been utilized for making investments. The magnitude of transactions carried out by assessee should not be very material in coming to the conclusion that income in question was income from business. Further, there is no bar in law that a person who does share trading as business, cannot hold shares as investments. On consideration of aforesaid facts, income in question should be assessed under the sub-head 'short-term capital gain'.

Income Tax Act, 1961 Section 14

Income Tax Act, 1961 Section 28(i)

Income Tax Act, 1961 Section 45

Followed:CIT v. Gopal Purohit (2011) 336 ITR 287 (Bom) and Janak S. Rangwalla v. Asstt. CIT (2007) 11 SOT 627 (Mum.).

REFERRED : CIT v. Holck Larsen 60 ITR 67 (SC), CIT v. Associated Industrial Development Co. Ltd. 82 ITR 586 (SC), CIT v. Motilal Hirabhai Spg. and Wvg. Co. Ltd. 113 ITR 173 (Guj.), Raja Bahadur Viswshwara Singh v. CIT 41 ITR 685 (SC), CIT v. PKN 60 ITR 65 (SC), Saroj Kumar Mazumdar v. CIT 37 ITR 242 (SC) and Janki Ram Bahadur Ram v. CIT 57 ITR 21 (SC).

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